What type of tax is added to the selling price of a good or service?

The correct answer is indicated as indirect tax. An indirect tax is a type of tax that is not directly paid by the consumer to the government but is included in the price of a good or service. This tax is typically levied on goods and services, which means that the producer or seller incorporates the tax into the final price that consumers pay.

When consumers purchase a product that has an indirect tax applied, they may not even realize that part of their payment goes to this tax, as it is hidden in the total selling price. Common examples of indirect taxes include value-added tax (VAT) and sales tax.

In contrast, other options such as flat rate tax and ad valorem tax refer to different tax structures. A flat rate tax is a simple income tax that remains constant regardless of income level, while ad valorem tax is a specific type of indirect tax that is assessed based on the value of the good or service. A subsidy, on the other hand, involves government financial support to reduce the cost of a product or service and is not a tax.

Understanding the nature of indirect taxes is crucial in economics, as they affect market prices and can influence consumer behavior and spending.